Hungary cut to junk status by Moody’s

Hungary, the country seeking aid from the International Monetary Fund, has been cut to junk status with a negative outlook, despite having net debt to GDP ratios well below Italy and Greece.

Moody’s said uncertainty surrounding the government’s ability to meet its fiscal consolidation targets and to reduce its public sector debt were behind the demotion.“Hungary’s recent requests for assistance from the IMF and the EU illustrate the funding challenges facing the country.”

Moody’s move was from Baa3 to Ba1. It is rated the poorest level above junk by Moody’s counterparts Standard & Poor’s and Fitch.

Hungarian debt joined that from Eastern European neighbours Lithuania and Croatia in underperforming this year. Helene Williamson, emerging markets debt fund manager at First State Investments, said heavy selling by struggling European banks holding the paper contributed to the performance.

The nations have not been helped by Austrian authorities recently restricting bank lending to central and Eastern Europe.